Office for Budget Responsibility must show independence by moving out of the Treasury

The tax and spending watchdog needs to have its own staff and offices, says outgoing OBR boss, Sir Alan Budd

Sir Alan Budd, outgoing chair of the Office of Budget Responsibility (OBR), says the tax and spending watchdog should show its independence by moving out of the Treasury. Photograph: Chris Ratcliffe Pool/EPA

The government's tax and spending watchdog should employ its own staff and move out of the Treasury to head off criticism that the Office for Budget Responsibility (OBR) lacks independence, its outgoing boss said.

Sir Alan Budd, chair of the interim budget responsibility committee, said candidates for the committee should also be vetted by parliament to make sure the OBR secures its future as an independent watchdog.

Budd said: "We are able to state, without reservation, that there was no ministerial involvement in the forecasts at any stage. However the fact that we were operating in the Treasury and relying on official resources has raised doubts about our independence in some quarters."

The OBR's independence has come under sustained attack in the past two weeks, after it released figures on employment only hours before a debate in the House of Commons over leaked Treasury forecasts of public sector job cuts.

The prime minister, David Cameron, rebutted criticism of the government's prediction of job losses by pointing to OBR forecasts for job creation across the economy.

Labour said the release showed that the OBR had succumbed to government pressure and its independence was in doubt.

The controversy reignited days later when it was found the OBR made last-minute changes to its budget forecasts that had the effect of reducing the impact of its austerity package on public sector job losses, the government has acknowledged.

The OBR's published estimates show that 490,000 public sector jobs would be lost by 2014-15, with a total of 600,000 by the following year. Without the revisions the forecast would be nearer 775,000.

Further questioning of the watchdog found it used a narrower definition of the public sector, depressing the figure for total public sector losses by about 50,000.

When he appears before the Treasury select committee tomorrow morning, Budd is expected to repeat his denial that he came under pressure from the Treasury to minimise the impact of cuts in public spending. But he will concede that at times the watchdog has appeared less than independent.

The main recommendations are:

• The OBR should be located outside the Treasury building.

• The technical independence of the OBR should be enhanced through the transfer of analytical capacity from the Treasury to the OBR.

• The OBR should employ a mix of external recruits and seconded Treasury employees to produce forecasts and analysis.

• Parliament should have a role in the appointment of the members of the budget responsibility committee.

• The OBR should produce forecasts for the economy and public finances.

• Forecasts should be produced at least twice a year and include the official budget forecast.

• The OBR should undertake broader analysis of fiscal sustainability.

Budd said: "My advice to the chancellor sets out my recommendations for establishing the OBR as a leading independent fiscal institution. It will inevitably take time to settle in but I am confident that the OBR will play a substantial part in enhancing the quality of fiscal policymaking."